Common Scenarios for Sales and Operations Planning

The nature of an S&OP game plan depends on several factors, such as the need to anticipate demand and the item s primary source of supply.

Consideration of these factors can be illustrated with four common scenarios. The first two scenarios reflect stocked end-items, while the next two scenarios reflect make-to-order manufactured products. Replenishment of stocked material could be based on forecasted demand or order point logic, but the following explanations focus on the use of forecasted demand.

Procurement activities are driven by existing purchase orders and by suggested new purchases. Planning calculations help formulate a realistic game plan by identifying potential material constraints on a requisition worksheet. An unrealistic rescheduling suggestion is identified by a due date earlier than today s date. Another unrealistic suggestion involves an expedited purchase inside normal lead-time , identified by an order start date earlier than today s date.

Unrealistic situations in the supply chain often require changes to sales orders. An analysis of an item s supplies and demands may be required to understand a situation and make the appropriate decision. Typical analysis tools include a time-phased summary of an item s supplies and demands (such as the Item Availability by Period window) and a drill-down to specific supplies and demands.

The ability to make realistic delivery promises on sales orders helps ensure a realistic game plan and avoids excessive expediting. Order promises identify the earliest ship date for a specified quantity and location. Order promises based on available-to-promise (ATP) logic consider inventory and scheduled receipts, whereas capable-to-promise (CTP) logic considers the item s lead-time for out-of-stock conditions.

Scenario #2: S&OP for a Make-to-Stock Manufactured Product

The S&OP approach for a make-to-stock manufactured product is almost exactly the same as a distribution item, since it requires inventory to anticipate actual demand. As shown in Figure 4.2, demands consist of sales orders and sales forecasts by location. Sales orders consume sales forecast and drive shipping activities, and the combination of forecasts and sales orders drives the item s master schedule comprised of production orders.

Figure 4.2: S&OP for a MTS Manufactured Item

Production and procurement activities are driven by existing production orders and by suggestions for new production orders. Planning calculations help formulate a realistic game plan by identifying potential material and capacity constraints. A planning worksheet identifies potential material constraints related to the end-item and its manufactured and purchased components . The worksheet indicates an unrealistic rescheduling suggestion when the due date is earlier than today s date. Another unrealistic suggestion may involve an expedited purchase inside normal lead-time, identified by an order start date earlier than today s date.

Work center load analysis identifies potential capacity constraints in terms of overloaded periods. In overloaded periods, adjustments to available capacity (such as overtime and personnel transfers) or adjustments to loads (such as alternate operations) can help overcome the capacity constraint.

Unrealistic situations in the supply chain often require changes to the master-schedule or to sales orders. An analysis of an item s supplies and demands may be required to understand a situation and make the appropriate decision. Typical analysis tools include a time-phased summary of an item s supplies and demands, and a drill-down to specific supplies and demands.

The ability to make realistic delivery promises on sales orders helps ensure a realistic game plan and avoids excessive expediting. Order promises identify the earliest ship date for a specified quantity and location, using either available to-promise (ATP) logic or capable-to-promise (CTP) logic.

Use of a Manually Maintained Master Schedule for Stocked Items

Some manufacturers use a manually maintained master schedule for stocked items. Firm and released production orders define the master schedule. A manual reordering policy means that planning calculations do not suggest changes to the master schedule. The manually maintained master schedule reflects the planner s decision-making logic about how to meet demands, therefore eliminating the need for entering forecasted demand and inventory plans.

Scenario #3: S&OP for a Completely Make-to-Order Product

The S&OP approach for a completely make-to-order product focuses on sales orders, often preceded by a sales quote. For sales orders, a projected shipment date can be calculated using capable-to-promise logic when the product s bills and routings have been defined. In some cases, information about the product s bills and routing may not be completely defined at the time of sales order placement, or the definition evolves over time. One approach to handling sales orders for these partially defined products builds on the use of master bills, as described below in the breakout box concerning S&OP for partially defined make-to-order products.

In other cases, the make-to-order product represents a one-time demand for a yet-to-be-designed custom product. One approach to handling a custom product configuration builds on the use of order-dependent bills (rather than master bills). The configuration is often defined before entry of a sales order. Chapter 8 summarizes how to use a simulated production order for a one-time custom product, convert or copy it to a production order, and calculate a projected completion date based on CTP logic

Production orders for each make-to-order product typically have direct linkage to the sales order. A make-to-order environment can optionally use production orders indirectly linked to sales orders. Planning calculations coordinate production and procurement activities to ship the sales orders on time. The planning calculations identify potential material and capacity constraints on a planning worksheet and work center load analysis, as described in the previous scenario.

S&OP for Partially Defined Make-to-Order Products

The definition of a product s bills and routing may be incomplete at the time of sales order placement. An incomplete design may reflect several conditions, such as rough quotes, evolving customer specifications, or requirements for further engineering design to specify part numbers and drawings. In many cases, procurement and production activities must be initiated for critical- path components before the design has been completed.

Planning calculations can use partially defined bills and routings to help coordinate these supply chain activities. Several suggestions may help. First, basic decisions must be made about using master bills or order-dependent bills to define product structure, and about the need for identifying intermediate subassemblies. Further discussion assumes use of the master bills.

The next steps involve defining items for critical-path components, such as key subassemblies and long lead-time purchased material, so that orders can be initiated. A critical-path manufactured item requires additional information about its bill of material. The master bills must have a certified status even if they are partially defined. In this way, planning calculations can generate suggested action messages based on the evolving definition of product structure.

Scenario #4: Make-to-Order Product Built from Stocked Components

The S&OP approach for a partially make-to-order product requires component inventory in anticipation of actual demand. The level of stocked components must reflect the desired delivery lead-time with respect to the item s product structure. For example, components stocked at the first level provide the shortest delivery lead-time. A stocked component may reflect other considerations, such as intermittent delivery or some production or purchasing constraint.

As shown in Figure 4.3, independent demands consist of end-item sales orders and component forecasts by location. Component forecasts drive the master schedules for stocked material, whereas sales orders drive the finishing schedules (also called final assembly schedules ) for the end-item and any make-to-order components.

Figure 4.3: S&OP for a MTO Manufactured Product

Order promises identify the earliest ship date for a specified quantity using CTP logic. Planning calculations coordinate production and procurement activities to replenish stocked components and meet sales order requirements. The planning calculations identify potential material and capacity constraints on a planning worksheet and work center load analysis, as described in a previous scenario.